Jennings v. Pittsburgh Mercantile Co.
1964 Pa. LEXIS 610, 202 A.2d 51, 414 Pa. 641 (1964)
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Rule of Law:
An agent's representations concerning the extent of their authority cannot, by themselves, create apparent authority. For an extraordinary transaction not in the ordinary course of business, an agent's corporate title or prior acts of soliciting offers are insufficient to establish apparent authority to bind the principal.
Facts:
- Frederick A. Egmore, Vice-President and Treasurer-Comptroller of Pittsburgh Mercantile Company (Mercantile), met with real estate broker Dan R. Jennings to discuss Mercantile's desire to raise cash.
- Egmore asked Jennings to solicit offers for a sale and leaseback of all of Mercantile's real property.
- During the meeting, Egmore represented that Mercantile's executive committee had the authority to accept an offer and that subsequent board of directors' approval would be automatic.
- Egmore promised Jennings a commission if he secured an offer with terms acceptable to the executive committee.
- Jennings procured three offers; after the first two were rejected, Mercantile's financial consultant, Walter P. Stern, informed Jennings that the executive committee had 'agreed to the deal' on the third offer.
- Within a week of this statement, Egmore informed Jennings that the third offer was rejected.
- Mercantile refused to pay Jennings the brokerage commission, asserting that Egmore never had the authority to accept the offer and bind the company.
Procedural Posture:
- Dan R. Jennings and Daniel B. Cantor sued Pittsburgh Mercantile Company in a Pennsylvania trial court to recover a real estate brokerage commission.
- A jury returned a verdict in favor of the plaintiffs, Jennings and Cantor.
- The defendant, Mercantile, filed a motion for judgment notwithstanding the verdict (judgment n.o.v.), which the trial court denied.
- Mercantile, as appellant, appealed the trial court's denial of its motion to the Supreme Court of Pennsylvania.
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Issue:
Does a corporate vice-president have apparent authority to accept an offer for an extraordinary transaction, such as the sale and leaseback of all the company's real property, based on the agent's own representations, his corporate title, and his prior acts of merely soliciting offers?
Opinions:
Majority - Mr. Justice Cohen
No. A corporate vice-president does not have apparent authority to bind the corporation to an extraordinary transaction, such as the sale of all its assets, merely by virtue of his title or his own assertions of authority. Apparent authority emanates from the actions of the principal, not the agent. The court reasoned that an agent cannot, by his own words, invest himself with apparent authority. Furthermore, the transaction in question was extraordinary and unprecedented for Mercantile, which placed a duty on the experienced brokers to inquire into the agent's actual authority. Egmore's prior acts of providing financial information and soliciting offers were fundamentally dissimilar to the act of accepting a binding offer. Finally, corporate titles like vice-president and treasurer do not, by themselves, create a reasonable inference of authority to consummate a transaction that would normally require approval from the board of directors.
Analysis:
This decision reinforces the critical distinction between ordinary and extraordinary corporate transactions within the law of agency. It clarifies that for transactions outside the normal course of business, such as the disposition of all corporate assets, third parties cannot reasonably rely on the typical indicia of authority like an officer's title or prior, lesser dealings. The ruling protects corporations from being bound by unauthorized acts of high-level employees in matters that are statutorily reserved for the board of directors. It places a burden of inquiry on sophisticated third parties when the nature of a transaction is so significant that it should signal the need for verification of authority.
